Chinese Digital Yuan to Provide ‘Controlled Anonymity’

An analysis published by the Chinese company Huatai Securities reveals more details about the Digital Currency Electronic Payment (DCEP) system which China is now finalizing. It’s become obvious that unlike decentralized cryptocurrencies, DCEP will operate in a centralized environment managed by the PBOC.

Controlled Anonymity

Its “legally encrypted” currency will be a digital form of the renminbi (RMB). Unlike electronic payments based on platforms such as Alipay, which digitize money in the existing commercial bank account system, M1 and M2 money supply, the digital yuan aims to replace banknotes and coins, or the narrowest money supply type, M0. To achieve that, DCEP will also support offline transactions.

The digital yuan will be distributed through a two-tier system. The central bank will issue the currency to commercial banks against their reserves and then provide it to the public.

Compared to the traditional fiat system, DCEP will offer the Beijing government and the Chinese central bank greater controls over all transactions, which is impossible with paper cash. As a substitute for cash, the CBDC will share characteristics with both paper currency and digital fiat currency. For example, the digital yuan is supposed to ensure what the report describes as “controlled anonymity of transactions.”

The current electronic payment methods such as bank cards and third-party payment platforms are tightly linked to real-name bank accounts, the authors explain.

The DCEP system will transfer value without going through bank accounts. The central bank will have access to transaction data and can trace the digital currency sources using big data analysis, but commercial banks and merchants won’t be able to obtain that information.

Individuals and businesses will open digital wallets through commercial banks and deposits and withdrawals will require a corresponding bank account. Similar to paper money, however, transfers between users won’t involve a link between their bank accounts and the network.

Digital yuan transactions will be processed through a centralized ledger. The DCEP consists of a central bank digital currency system which issues the coin and registers ownership, commercial bank digital currency systems performing banking functions, and a system providing authentication for the interaction between the central bank, commercial banks, and payment terminals.

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Chinese Digital Yuan to Provide ‘Controlled Anonymity’
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